Aug 9, 2011

Where is fund flow to Indonesia?

If you have equity portfolios in Indonesian market and late for redemption just because you believe that all foreign funds from the US and European markets, which are currently engulfed by the turmoil and massive sell-off, may inundate the Indonesian market, you can complain it to several government officials.

Prior the US market turmoil last week, marked by a steep plunge of Dow Jones Industrial Average and S&P 500 Index, several Indonesian government officials made misleading statements to the press.

I still remember that two of the government top level officials said foreign fund will overwhelm the Indonesian financial markets soon after the crisis hit European and the US markets. Is it true?

Theoretically, it might be correct. But, no one knows how long the funds will inflow to the Indonesian financial markets, a month, 3 months, or 6 months after the crisis, no one knows.

The problem is those statements have improved confident of the government without doing better actions rather than just making regulations and moral suasion.

The funny thing is when I heard that a top level government official said the foreign fund flow keeps staying in Indonesian markets, no disruption at all. I think that is ridiculous statement!. Everyone in the markets knows that US$277 million foreign funds went out from Indonesian equity market just in 2 days consecutive steep plunges.

As of yesterday, foreign funds flow in the Indonesian equity market was US$2.39 billion, the highest compared to that in Thailand, Philippine, Vietnam.

The two consecutive days drop in Jakarta Composite Index hasn't too influence foreign fund in the government debt securities. The prolonged rallies of the government debts have boosted the prices, making them looks so expensive. But, yesterday saw the first correction.

Foreign fund in the Indonesian equity market is too small compared to the foreign fund in the Indonesian debt securities which reached Rp249.62 trillion, counting 35.72% of the total debt outstanding of Rp698.99 trillion.

So, if the government debt market starts facing the sell-off today, you should prepare yourself as Indonesian foreign reserves is about US$122 billion, far below the foreign fund in the debt markets.